Payroll tax amounts for salaries stay the same unless there’s been a change in the employee's deductions or salary. If you run your own business and pay someone a salary, you must follow specific withholding procedures. The same calculations apply if you simply want to verify that your — or your spouse’s — employer withheld the correct amount of taxes from your salaries.
The key to figuring payroll taxes on salary is to determine which taxes are required, and then calculate those taxes. Most employees must pay federal income tax, Social Security tax and Medicare tax. Whether state income tax is due depends on where the employee works. The states of Alaska, Nevada, Florida, South Dakota, New Hampshire, Texas, Washington, Tennessee and Wyoming do not require that employees pay state income tax. Some states, such as Ohio and Pennsylvania, also impose local income tax on employees who live or work in specific local areas. As of 2012, only employees in Pennsylvania, Alaska and New Jersey must pay state unemployment tax.
Federal Income Tax Calculation
To figure federal income tax, see line 3 of the person’s W-4 form for her filing status and line 5 for her allowances. Assuming that she doesn’t have any pretax deductions, look up the federal tax table that goes with her filing status, allowances, taxable wages and pay period. If you offer pretax benefits, such as a retirement plan, deduct the employee’s contribution from her gross salary before calculating the tax. Let’s say she earns a taxable salary of $525 and claims married on the W-4 with one allowance. Page 40 of the 2012 Internal Revenue Service Circular E says she would pay $30 in federal income tax.
State Tax Application
For state income tax, apply the state revenue service’s calculation. This might be as straightforward as multiplying the required tax percentage by the employee’s taxable salary; or as extensive as applying her state tax form and the state tax tables. The state also has specific requirements for resident and nonresident employees, so obtain the rules that apply to the person in question. If local income tax applies, get the calculation rates from the state revenue agency or the local tax assessor. If state unemployment tax applies, obtain the rates from the state workforce agency.
Social Security and Medicare Amounts
As of 2012, calculate Medicare tax at 1.45 percent of all taxable salary, and Social Security tax at 4.2 percent of taxable salary up to $110,100 for the year.
If an employee is exempt from a specific tax, that tax should not come out of her salary. Most salaried employees are not exempt, as the requirements are very limited. As an example, a student who is employed at a school, college or university at which she’s also a regular student is excluded from Social Security and Medicare taxes.
- IRS.gov: Understanding Taxes
- IRS.gov: Form W-4
- IRS.gov: Circular E, The Employer's Tax Guide
- Social Security Administration: 2012 Social Security tax rate and maximum taxable earnings
- IRS.gov: States Without a State Income Tax
- IRS.gov: Persons Employed in U.S. Possessions - FICA
- IRS.gov: Employee Benefits
- Tax-Tables: Withholding Tables